Can ETFs Be Derailed?

ETFs have been a terrific innovation for investors, but they're not without risk. What you should keep an eye on.

For all their popularity and éclat, exchange-traded funds are like blockbuster drugs -- hugely beneficial when used correctly, but not bereft of potential adverse side effects. And, while the risks might seem small or unlikely, they could add up to an unpleasant experience. Some bankers, traders, and academics are increasingly voicing concerns that ETFs could exacerbate market downturns.

To gauge the biggest risks requires an understanding of what makes the ETF structure unique. For starters, these funds rely on a complex...